| Investing for the future is one of those things that can | | | | Investing in a New Society: |
| be difficult. None of us know exactly what the future is | | | | The new society will require a much more |
| and where to put our money. Many more of us know | | | | sophisticated investor than what was necessary |
| almost nothing about investing and prefer to use | | | | during our parents time. Even though the basics of |
| seasoned professionals. In the end we are left with | | | | investing are the same such as risk vs. reward, |
| little control over the fate of our retirement. | | | | diversification, living below your means, etc. are the |
| Conventional Wisdom: | | | | same the types of investments and the amount of risk |
| Conventional wisdom says live below your means, | | | | people are willing to make should change. |
| invest, and the government will chip in the rest. We get | | | | Diversity no longer includes mutual funds only but the |
| there through education and working hard. For the | | | | mix of investments in stocks, bonds, real estate, |
| Baby Boomers this made sense but many are now in | | | | business, and others. The more different sectors of |
| trouble as retirement is only a few years off and more | | | | the society you invest in the better chance you have |
| than 50% have less than $100,000 in their retirement | | | | of whether declines in the market. For example, real |
| accounts. | | | | estate may further be invested in vacant land, |
| During the era of the baby boomers the mentality | | | | apartments (income generating), office buildings or |
| drew from their parents which typically lived through | | | | houses. |
| the Great Depression. During this time there was little | | | | Risk is a natural part of getting a return. Generally the |
| employment, difficulty starting businesses and a | | | | higher the risk the more money to be made but also |
| general feeling that one must save in order to ward | | | | the more likely it is to lose that money. The same can |
| off serious poverty. The rainy day mentality has never | | | | be said for low risk low returns. In todays market there |
| left us. | | | | is some fear that inflation could eat away at ones |
| A Changed Economy: | | | | gains. |
| The economy is definitely going to change in the next | | | | Let us say that you are in a fund that pays 6% |
| 20-30 years. Some of the changes that are happening | | | | interest. Not bad? The only problem is that a 2006 |
| are the retirement of a large section of the population | | | | inflation rate of 3.5% just left with an increase of 2.5%. |
| which will need to be taken care of (possible | | | | Ummmnot very good! If you really wanted a 6% return |
| bankruptcy of Medicare & Social Security), the rise of | | | | you would have to make a 9.5% return on all of your |
| oil prices ($4 to $5 a gallon) that will slow the economy | | | | investments. |
| down, huge national debt that exceeds our ability to | | | | If you follow the advice of mutual fund investors there |
| pay for it (without rampant inflation from printing | | | | is a good chance you wont have much when |
| money), and environmental change (lack of water). | | | | retirement comes. That means you are going to have |
| When the economy changes we will need to change | | | | to take some risk by investing less in blue chips stocks |
| with it. That means society will shift to the owners of | | | | and more in small to medium businesses. The key to |
| production and the workers thereby shrinking the | | | | avoiding collapse is to diversify your portfolio with a |
| middle class. Thus we will be a rich/poor society that | | | | basket of smaller companies and investments that |
| will be dramatically different than it is today. All of the | | | | have nothing to do with the stock market (i.e. real |
| conventional wisdom people have been relying on for | | | | estate, businesses, etc.). |
| years will be wiped away or eat up by inflation. | | | | |